INTERNATIONAL MARKETS BUSINESS STRATEGY

INTERNATIONAL MARKET EXPANSION:

Business Strategy to Expand a Business Internationally

A Case Study of Diageo (Kenya) and SAB Miller (Colombia)

By

Evgeny Kim

Student Number S152334

A Dissertation submitted in partial fulfillment of the requirements for the degree of Bachelor of Business and Management of University Campus Suffolk

May, 2014

Acknowledgement

Researching international business expansion was a challenging and fulfilling endeavor. The journey involved evaluating different processes involved and combining the findings cohesively. I would like to extend my sincerest gratitude to; the supervisor, friends, family, colleagues, and the people involved during the preparation process.

Abstract

Businesses undergo transformations as they grow towards maturity. The most enterprising organizations establish international presence during the early phases of life cycles. It is integrated into the business development plan. For most enterprises, the option is usually considered as domestic markets mature.

Internationalizing business faces a number of challenges with the potential of extensive rewards. The ability to effectively leverage on existing strengths to take advantage of opportunities accelerates investment returns. Maneuvering the diverse regulatory environments with the most apt market entry mode dictates the success possibilities.

The main import of this research paper was to examine international markets expansion by evaluating different available options. Internationalizing opinions differ depending on the scope and resources utilized during the market entry process. To achieve this objective, internationalization was examined holistically.

The main objective was dissected into the following minor objectives; to evaluate the attractiveness of international markets, to ascertain the most appropriate international market entry strategies, and to determine the challenges and regulatory expectations faced an organization as it internationalizes its operations.

Research was mainly conducted with the aid of two case studies of internationalization strategies adopted by real businesses. Econometric analysis of economic data to show the implications of FDI was also undertaken. The findings were represented using appropriate illustrations to support the discussions of the relevant objectives.

Table of Contents

Acknowledgement ii

Abstract iii

Chapter 1 List of Figures vii

List of Tables viii

Chapter 1 : Introduction 1

Introduction 1

Background 1

International Expansion 1

International Market Entry Strategies 2

Regulatory Environment 3

Challenges of International Expansion 4

Purpose of the Study 5

Research Objectives 5

Research Questions 5

Justification for the Study 6

Scope of the Study 6

Delimitations 6

Chapter 2 : Literature Review 7

Introduction 7

International Expansion 7

Internationalization/Transaction-Cost Theory 10

Eclectic Theory 10

Resource-Based Theory 11

Uppsala Model 11

International Market Entry Strategies 12

Exporting 13

Licensing 13

Franchising 14

Joint-Ventures/Strategic Alliances 14

Acquisitions 15

Wholly-Owned Subsidiaries/Greenfield Operations 15

Regulatory Environment 16

Challenges of International Expansion 18

Research Gaps 21

Chapter 3 : Research Methodology 22

Introduction 22

Research Methodology 22

Research Methods 23

Research Approach 24

Research Design 25

Choice of Companies 25

Data Collection Instruments 26

Data Processing and Analysis 26

Validity and Reliability 26

Chapter 4 : Research Findings and Results 27

Introduction 27

Case Study: Diageo (Kenya - EABL) 27

Company Background: Diageo 27

International Expansion 28

Host Country Overview: Kenya 30

Company Overview: EABL 31

Market Entry Strategy 33

Regulatory Environment 33

Market Performance 34

Market Challenges 34

Case Study: SAB Miller (Colombia – Grupo Bavaria) 36

Company Background: SAB Miller 36

International Expansion 37

Host Country Overview: Colombia 39

Company Overview: Grupo Bavaria 40

Market Entry Strategy 41

Regulatory Environment 42

Market Performance 42

Market Challenges 43

Chapter 5 : Discussion of Findings 44

Introduction 44

Case Analysis: Diageo (Kenya) 44

Case Analysis: SAB Miller (Colombia) 45

Cross-Case Analysis 46

Chapter 6 : Summary, Conclusions, and Recommendations 47

Introduction 47

Summary 47

Conclusions 48

Recommendations 49

Future Research 49

Chapter 7 : References 50

Chapter 8 : Appendices 56

Chapter 1List of Figures

Figure 2‑1: Selecting Market Entry Mode: Risk Profiling 16

List of Tables

Table 4‑1: Kenyan Beer Market 31

Table 8‑2: Common Size Analysis: Diageo and SAB Miller 56

Table 8‑3: Comparison of Market Entry Modes and Performance 56

Chapter 1: Introduction

Introduction

This chapter provided an overview of the subject of international market expansion. It succinctly illustrated background subjects including; market entry strategies, international expansion, and challenges. In addition, purpose of the study, research objectives/questions, justification and scope of the study, and delimitations were also highlighted.

Background

International Expansion

International expansion is the process of adapting business practices and transaction structures to external markets (Malhotra, Naresh, Ulgado, & Agarwal, 2003). A firm may be establishing initial market presence through exports, acquisition, or developing a wholly-owned Greenfield operation. This is basically developing new markets for existing products.

Increasing resources commitment in existing foreign markets may also be considered as part of the internationalization process (Amdam, 2009). Essentially, this means that an organization can extend its market presence as part of diversification or market penetration initiatives. The increased investment in foreign markets asserts international expansion.

There are a number of motivations that drive an enterprise to expand internationally. They include; access to new customer base, increase business competiveness by lowering operating costs, enhance core competencies, and spread business risks to a wider base to avoid turbulences that would jeopardize business progression (Thomson & Martin, 2005).

Government incentives through amiable regulatory also influence firms to expand. Business size, resources potential, and home market saturation also motivate enterprises to consider foreign markets for diversification. In effect, niche firms, SMEs (small-medium-sized enterprises), and large firms have to internationalize to sustain growth (Couturier & Cola, 2010).

Overall, international expansion may be developed as an intrinsic part of the original business plan or considered as alternative momentum driver during business maturity. Technology access and reduction in trade barriers is motivating more businesses to have a global objective in their corporate strategy and be more adept to environmental dynamics.